JPMorgan Bankers Charged in Germany Over $64 Million in Swap-Sale Losses

Karin Matussek

February 9, 2015 — 7:36 AM ESTFebruary 9, 2015 — 10:14 AM EST

Two JPMorgan Chase & Co. employees were charged in Germany over the sale of swaps to the city of Pforzheim that resulted in 57 million euros ($64 million) of losses, prosecutors said.

The two men were charged with aiding in aggravated breach of trust for selling “highly speculative” swaps to the municipality, Mannheim prosecutors said in an e-mailed statement Monday. The indictment was filed two years after three city officials were charged over the deal.

“City officials weren’t allowed to buy such financial products and the accused allegedly knew that,” prosecutor spokesman Peter Lintz said. “The bank employees allegedly helped to misinform the city council about the risks of the transactions.”

Pforzheim was among several European municipalities that lost millions of euros on derivative transactions that went bad. In 2010, Pforzheim had piled up losses of 57 million euros while JPMorgan earned 14.3 million euros. The city has settled a lawsuit against JPMorgan and recovered some of the losses, according to Lintz.

The deals under investigation were designed to make up for losses of 20 million euros incurred from derivatives sold by Deutsche Bank AG. Prosecutors said the cases against two men at the German bank and a third person at JPMorgan lender were dropped.

A spokeswoman for JPMorgan in Frankfurt and Armin Niedermeier, a Deutsche Bank spokesman, declined to comment.

Court Review

A court in Mannheim now has to decide whether the charges can go to trial. The indictment against the three city officials has been pending for two years and judges still haven’t decided whether that case can proceed.

“Courts here just have so much on their dockets -- that’s why this takes so long,” Lintz said by telephone, adding the court may opt to try both cases together.

Pforzheim bought the swap from JPMorgan to mirror the derivative it had acquired from Deutsche Bank. Over time, the Deutsche Bank transaction turned profitable, while the swap from JPMorgan went in the opposite direction.

Pforzheim has also settled a suit against Deutsche Bank over the issue.

JPMorgan, Deutsche Bank, UBS Group AG and Depfa Bank Plc in March won a bid to overturn a conviction for overseeing fraud by their bankers in the sale of derivatives to the city of Milan. An appeals court in Milan cleared the banks and individuals at the firms.